The year is 2027. Saudi Arabia has ramped up production again, causing energy prices to sink around the globe. Oklahoma’s economy is more diversified than it was in 2016, but energy is still at its center. The drop in energy prices is causing tax receipts to come in below projections.
Legislators creating the 2028 budget see that they’ll have far less to spend than they did in 2027. However, no parent calls their child’s principal to ask if their teacher will be laid off. No Medicaid recipient worries their health care needs will go unmet. Instead, state budget makers turn to the Revenue Stabilization Fund and the Rainy Day Fund, where, cumulatively, over a billion dollars has been waiting for just such a day.
As legislators serving during the budget crisis of 2016, when a dramatic drop in energy prices caused a $1.3 billion shortfall, we wished the fantasy above could have been our reality. We did have the benefit of some savings, thanks to the creation of the Rainy Day Fund in response to the 1980s oil bust. But even though energy busts are as inevitable in Oklahoma as a spring thunderstorm, the Rainy Day Fund proved inadequate. Much of it had already been used, and even if the Fund had been full, it would have fallen half a billion dollars short of the need.
We believed strongly that 2016 was the time to enact savings reform. Even though we knew that we would be long gone from the Legislature the next time the energy cycle turned downward, we didn’t want to see this crisis repeated. So, we authored House Bill 2763 and guided it through to law, despite doubts that something this important and forward-thinking could be accomplished in the midst of this budget crisis.
HB 2763 enshrines some simple but powerful strategies to improve our state’s long-term savings. It creates a new Revenue Stabilization Fund to work alongside the Rainy Day Fund. Once tax revenues return to 2015 levels, any energy gross production tax revenue that comes in above a five-year average will go into the Fund. Additionally, three-quarters of the corporate income tax revenue that comes in above a five-year average will go into the Revenue Stabilization Fund; the remaining quarter will go to the Rainy Day Fund. Financial models project there will ultimately be hundreds of millions of dollars placed in the Revenue Stabilization Fund through these methods.
If there is a revenue failure, as occurred twice this year, the director of the Office of Management and Enterprise Services and the Legislature could each spend a quarter of the Fund. To balance the next year’s budget, the Legislature could spend up to half the Fund.
The Oklahoma Legislature is often rightfully criticized for its lack of long-term planning. However, in the case of HB 2763 and the creation of the Revenue Stabilization Fund, we feel strongly that something has been put in place that will benefit Oklahoma for the rest of its days.